Ormond v. Anthem: Demutualization Underpayment and $90M Settlement

The Ormond v. Anthem demutualization lawsuit was a federal class action brought in 2005 by roughly 700,000 former policyholders of Anthem Insurance Companies who claimed they were shortchanged when the insurer converted from a mutual company to a publicly traded corporation in 2001. After seven years of litigation in the Southern District of Indiana, the case settled for $90 million in June 2012, with final court approval that October.¹² It is one of the largest recoveries tied to an insurance demutualization.

What the 2001 Conversion Did

Anthem spent most of its history as a mutual insurer, meaning policyholders were also its owners and held voting rights along with a share in the company’s financial success.³ That changed on November 2, 2001, when the conversion took effect. Anthem, Inc. priced its IPO at $36 per share on October 30, 2001.⁴

Eligible policyholders, called Eligible Statutory Members, surrendered their ownership interests and received either stock or cash. Cash recipients were paid $39.60 per share, a 10 percent premium over the IPO price.⁴ Stock recipients got a number of shares calculated by an actuarial formula tied to their line of business. The Indiana Department of Insurance reviewed the plan and later called it “fair, reasonable and equitable.”¹ Anthem was the fifth-largest U.S. health insurer to demutualize and the first Indiana insurer to do so.⁵

The Underpayment Claim

The lawsuit, filed in 2005 as Case No. 1:05-cv-01908, was led by Mary Ormond, with Kevin Heekin and Daniel Cescato also serving as named plaintiffs.⁶ The core theory was simple. The plaintiffs alleged that Anthem and its directors breached fiduciary duties and acted negligently when they set the price and size of the IPO, which determined how much cash the members received.

Anthem paid $39.60 per share. The plaintiffs argued the true value sat in the mid-$40s, leaving the class underpaid by an estimated $227 million to $448 million.¹² The suit named Anthem, Inc. and various officers and directors. Goldman Sachs, the IPO underwriter, was originally a defendant but was dismissed early in the case.⁷

Who Was in the Class

On September 29, 2009, Judge David Hamilton certified a “Depressed Price Class” made up of former Anthem members who received cash in the demutualization, along with an ERISA subclass for participants in benefit plans governed by that statute.⁷⁶⁵

Two proposed subclasses did not make it in: one for members who alleged they received inaccurate tax information, and one for members who wanted stock but received cash.⁸ Members who received stock rather than cash were not part of Ormond at all. Their claims moved forward in a separate companion case, Jorling v. Anthem (Case No. 1:09-cv-798), filed after Judge Hamilton refused to let the Ormond plaintiffs add a stock-recipient claim by amendment.⁷

The Rulings That Kept the Case Alive

Anthem’s central defense was that the plaintiffs had missed their chance. Under Indiana Code § 27-15-15-2, challenges to the Department of Insurance’s approval of a demutualization plan had to be brought within 30 days. If that window was the only remedy, the lawsuit was too late.

Judge Hamilton rejected that argument. He held that Indiana’s demutualization statute did not strip policyholders of their common-law rights to sue for breach of contract and breach of fiduciary duty, either before or after the Commissioner approved the plan.⁷ He grounded that ruling in Indiana constitutional principles, reasoning that applying a 30-day cutoff would deny the plaintiffs any remedy for an injury they could not have discovered within that period.

Judge Hamilton did narrow the case. In March 2008 he dismissed the plaintiffs’ federal and state securities claims, their claims under Indiana’s demutualization statutes, and their unjust enrichment theory, and he dismissed all claims against Goldman Sachs.⁷ In January 2009 he dismissed defendant Larry Glasscock on statute-of-limitations grounds.⁹

After Judge Hamilton was elevated to the Seventh Circuit, the case went to Judge Tanya Walton Pratt. On July 1, 2011, she issued the summary judgment ruling that set up the endgame. She denied Anthem’s motion on the plaintiffs’ tort claim about the pricing and sizing of the IPO, letting it head to trial, and granted summary judgment on the rest.¹⁰ The opinion is reported at 799 F. Supp. 2d 910 (S.D. Ind. 2011).

Judge Pratt also certified three questions for interlocutory appeal to the Seventh Circuit: whether the Department of Insurance’s approval preempted the tort claims, whether Anthem owed common-law duties to its members over the IPO’s pricing and sizing, and whether Indiana’s economic loss doctrine barred recovery in tort. The Indiana Attorney General filed an amicus brief siding with Anthem, warning that allowing the claims to proceed would render Indiana’s demutualization statute “meaningless” and could drive insurers to leave the state.¹⁰

The $90 Million Settlement

The parties reached a $90 million settlement in June 2012 on what was described as the eve of trial.¹⁵ WellPoint, the company Anthem had become through later mergers, agreed to pay while maintaining that it had acted appropriately and in the best interests of its members during the 2001 transaction.

Judge Pratt granted final approval after a fairness hearing on October 25, 2012, finding the terms “fair, reasonable and adequate.” She approved case-contribution awards for lead plaintiffs Mary Ormond and Kevin Heekin. Six firms representing the class sought $30 million in attorney fees, with the fee ruling still pending at the time of settlement approval.²

Why the Case Mattered

Ormond established that a state insurance regulator’s approval of a demutualization plan does not, on its own, wipe out the common-law duties a mutual insurer owes its members during the conversion. The ruling that the 30-day statutory window did not bar breach of fiduciary duty and breach of contract claims opened a path for former policyholders to challenge how the IPO itself was priced and sized, not just the paperwork the Department of Insurance reviewed. The $90 million recovery remains the largest individual settlement to come out of the wave of demutualization litigation that followed conversions like Anthem’s.

1
Fierce Healthcare. WellPoint To Pay $90M Anthem Demutualization Settlement
2
The Indiana Lawyer. Judge Approves $90M for Anthem Plaintiffs
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GovInfo. Rokowsky v. Vericity, Inc., Memorandum Opinion and Order
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Elevance Health. FAQs – Corporate Actions
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Berger Montague. Ormond, et al. v. Anthem, Inc., et al.
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CaseMine. Ormond v. Anthem, Inc., Class Certification Order
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Justia. Ormond v. Anthem, Inc., Summary Judgment Order
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Iowa State University CALT. Ormond et al. v. Anthem, Inc. et al.
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Justia. Ormond et al v. Anthem, Inc. et al, Entry on Pending Motions
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CaseMine. Ormond v. Anthem, Inc., Entry on Motion for Certificate of Appealability